Estonian central bank announces budget deficit

Oct 23, 2008
TBT Staff in cooperation with BNS

The central bank’s fall forecast predicted a 3.6 billion kroon (230 million euro) deficit in 2008, the first deficit that the country has run since joining the EU.

Leaders of the central bank warned that in case of negative developments fiscal deficit may emerge as another problem beside inflation preventing Estoniafrom adopting the euro.

The government sector budget of a country switching to the euro must not have a gap exceeding 3 percent of GDP. The gap of 2.5 percent forecast for next year is not far from that limit, therefore one needs to make efforts to prevent the deficit from jeopardizing the switch to the euro, governor of the Bank of Estonia Andres Lipstok said.

Lipstok told reporters on Wednesday that a fiscal deficit was acceptable in the decline phase of the economy, provided that it was temporary and the budget as a whole had a surplus over the length of the entire economic cycle.

The central bank also said that unemployment – a problem that the country has not seen in recent years – was set to skyrocket, while wage growth will drastically fall off. 

The jobless rate is estimated to inch up from last year's 4.7 percent to 4.8 perent this year and further on to 7 percent in 2009 and to 8.3 percent in 2010, the central bank said. 

The growth rate of the average gross wage is set to drop almost threefold -- from 14.6 percent in 2008 to 5 percent in 2009. Since the rate of inflation will be about the same, real wages are to remain unchanged.

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